King Wan Corp

King Wan Corp: 2QFY15 results were below estimate as net profit tanked 63% y/y to $0.8m, on revenue of $21.1m (-14%). The decrease in revenue was due to lower recognition of revenue from Mechanical and Electrical contracts. Bottom line was weighed by a near halving of gross margin to 8.7% from 16.2%, offset partly by lower tax expense of $0.1m (-80%). While 1HFY15 net profit was up almost six-times to $26.7m, this was largely due to disposal gains of $24.1m made in 1QFY15, on back of the completion of divestment of two Thailand associates during the period. Going forward, King Wan guides that the construction industry outlook remains challenging in the next 12 months with increasing competition and increase in labour cost. The group currently has ~$166m worth of M&E engineering contracts on hand, stretching revenue visibility for the next three years. King Wan expects the M&E business segment to contribute positively to the group’s results in the next 12-months. At the current price, the group trades at 1.1x P/B. King Wan has declared an interim dividend of 0.7¢ per share.